illinois illustrated

I l l u s t r at e d

A V I S U A L G U I D E T O T A X E S & T H E E C O N O M Y

Taxpayers’Federation of Illinois

i

Illinois Illustrated

152653_ToC.indd 1 5/18/15 11:13 AM

ii

Copyright © 2015 Tax Foundation

ISBN: 978-1-942768-01-2

1325 G Street NW, Suite 950 • Washington, DC 20005 • (202) 464-6200taxfoundation.org

152653_ToC.indd 2 5/18/15 11:13 AM

iii

Copyright © 2015 Tax Foundation

ISBN: 978-1-942768-01-2

1325 G Street NW, Suite 950 • Washington, DC 20005 • (202) 464-6200taxfoundation.org

152653_ToC.indd 3 5/18/15 11:13 AM

iv

152653_ToC.indd 4 5/18/15 11:13 AM

v

Taxes are complicated. Each state’s tax code is a multifaceted system with many moving parts, and Illinois is no exception. This chart book aims to help readers understand Illinois’ overall economy and tax system from a broad perspective. It also provides detailed illustrations of each of Illinois’ major tax types—individual income taxes, business taxes, sales and excise taxes, and property taxes—to help make the complicated task of understanding the state’s tax code a bit easier.

These charts were compiled by Tax Foundation staff and edited by economist Liz Malm.

Joseph Henchman Vice President, Legal & State Projects Tax Foundation

Carol PortmanPresidentTaxpayers’ Federation of Illinois

Introduction

Illinois State Fair, photo: Katherine Johnson

152653_ToC.indd 5 5/18/15 11:13 AM

vi

Table of ContentsChapter 1: An Overview of the Illinois Economy 1Illinois’ Income per Person Is High but Converging with U.S. and Neighbors’ Levels 2Illinois’ Metro Income Tends to Be Higher than Non-Metro 3Illinois Has One of the Largest State Economies in the Country 4Metro-Area Employment in Illinois Is Very Different from Non-Metro 5Illinois’ Economy Is Moving away from Goods and toward Services 6Professional & Business Services, Private Education & Health Services,and Government Employ the Most People in Illinois 7Illinois Has Seen Consistent Out-Migration over the Last 20 Years 8Unemployment Rate in Illinois Tends to Be Higher than the U.S. Rate 9

Chapter 2: Illinois’ Tax Code: The Basics 10Illinois Taxes at a Glance 11State Tax Collections Have Grown Faster than Local Collections 12Compared to the Entire U.S., Illinois Relies More on Property Taxes, Less on Sales Taxes 13Corporate Income Taxes Are Illinois’ Most Volatile State Tax 14Illinois, like All States, Relies Heavily on Federal Aid 15Illinois’ Business Tax Climate Is Middle-of-the-Pack 16Illinois’ Business Tax Climate Falls behind Most Neighboring States 17Illinois’ Tax Burden Ranks Higher than Most Other States’ Burdens 18Illinois’ Tax Burden Is Now Higher than the U.S. Average 19Illinois Has the Most Under-Funded Public Pensions in the Country 20

152653_ToC.indd 6 5/18/15 11:13 AM

vii

Chapter 3: Individual Income Tax in Illinois 21Illinois’ Individual Income Tax Rate Has Fluctuated over Time 22Illinois’ Individual Income Tax Collections per Person over Time 23How Does the Illinois Individual Income Tax Impact Real People? 24Illinois Spent $4.35 Billion on Individual Income Tax Expenditures in 2013 26

Chapter 4: Business Taxes in Illinois 27Businesses Don’t Just Pay Corporate Income Taxes 28Businesses Pay Individual Income Taxes Too 29Effective Tax Rates Vary Widely by Industry and Age of Firm 30Corporate Income Tax Rate Has Fluctuated over Time 31Corporate Income Tax Collections per Person Are Volatile 32Illinois Is One of Only 18 States that Levies a Capital Stock Tax 33

Chapter 5: Sales Taxes in Illinois 34Illinois Has the Highest Combined Average Sales Tax Rate among Its Neighbors 35State-Level Sales Tax Rate Has Risen over Time 36Illinois’ Sales Tax Applies to Less and Less of the Economy 37Even with High Rates, Illinois Has Lower Sales Tax Collections per Person than the U.S. 38Not All Sales Tax Expenditures Are Created Equal 39

152653_ToC.indd 7 5/18/15 11:13 AM

viii

Chapter 6: Excise Taxes in Illinois 40Illinois’ Total Excise Tax Collections per Person Are High 41The Value of Illinois’ Gas Tax Has Declined over Time 42Illinois’ State Excise Taxes on Cigarettes and Alcohol 43Illinois Taxpayers Face High Wireless Service Taxes 44

Chapter 7: Property Taxes in Illinois 45Illinois Has High Property Tax Collections per Person 46Illinois’ Residential Effective Property Tax Rates Are Comparatively High 47Residential Effective Property Tax Rates Vary Widely among Counties 48Illinois Had 5,976 Different Taxing Districts in 2012 49

152653_ToC.indd 8 5/18/15 11:13 AM

1

An Overview of the Illinois Economy

CHAPTER 1

The following charts illustrate the current state of the Illinois economy, in addition to how it has fared over time. We show various economic indicators, including personal income per person, state gross domestic product, industry mix, employment composition, migration, and unemployment.

Illinois Soybean Farm, photo: Kevin Dooley

152653_Chp 1_pgs1-9.indd 1 5/18/15 11:21 AM

2 | ILLINOIS ILLUSTRATED

Illinois’ Income per Person Is High but Converging with U.S. and Neighbors’ LevelsPersonal Income per Capita as a Percent of the U.S. Level, Illinois and Neighboring States (1929-2013)

Historically, Illinois’ personal income per person has been above both the U.S. level and the levels of neighboring states (except for a brief blip in the early 1940s). In recent years, however, Illinois and other states have seen a convergence in relative income per capita. In 1929, Illinois’ personal income per person sat at 136 percent of the U.S. level, with all neighboring states trailing. By 2013, the gap between Illinois and its neighbors had decreased substantially as Illinois’ per person income declined to 105 percent of the U.S. average.

Source: Bureau of Economic Analysis, Regional Economic Accounts, Annual State Personal Income and Employment.

0%

20%

40%

60%

80%

100%

120%

140%

160%

1929 1934 1939 1944 1949 1954 1959 1964 1969 1974 1979 1984 1989 1994 1999 2004 2009

Illinois MichiganIndiana MissouriIowa Wisconsin Kentucky

U.S. Level

152653_Chp 1_pgs1-9.indd 2 5/18/15 11:21 AM

CHAPTER 1 | 3

Illinois’ Metro Income Tends to Be Higher than Non-MetroPersonal Income per Capita, Metro and Non-Metro Illinois (1969-2013)

As in other states, personal income per capita levels are not uniform throughout Illinois. Metro-area income per person tends to be higher than non-metro-area income. This is likely a result of the differing industry makeups of metro versus non-metro Illinois. However, incomes tend to grow at the same rate in both areas over the long run. Notably, non-metro incomes showed more resilience during the most recent recession.

Note: Counties designated by the Bureau of Economic Analysis as metropolitan are Alexander, Bond, Boone, Calhoun, Champaign, Clinton, Cook, DeKalb, DeWitt, DuPage, Ford, Grundy, Henry, Jackson, Jersey, Kane, Kankakee, Kendall, Lake, McHenry, McLean, Macon, Macoupin, Madison, Marshall, Menard, Mercer, Monroe, Peoria, Piatt, Rock Island, St. Clair, Sangamon, Stark, Tazewell, Vermilion, Will, Williamson, Winnebago, and Woodford.Source: Bureau of Economic Analysis, Regional Economic Accounts, Local Area Personal Income and Employment.

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

1969 1974 1979 1984 1989 1994 1999 2004 2009

Metro

Non-Metro

152653_Chp 1_pgs1-9.indd 3 5/18/15 11:21 AM


Illinois Has One of the Largest State Economies in the CountryState Gross Domestic Product, Select States (2013)

Illinois has one of the largest economies in the country (fifth largest based on state GDP) and is outranked only by California, Texas, New York, and Florida. All of Illinois’ neighbors, however, have considerably smaller economies. Much of this difference is driven by the large urban center of Chicago, the third largest city in the United States. The fact that Illinois is a large, populous state surrounded by smaller-economy states puts it in a unique regional position.

Source: Bureau of Economic Analysis, Regional Economic Analysis, Gross Domestic Product (GDP) by State, “GDP in current dollars.”

$0.0

$0.5

$1.0

$1.5

$2.0

$2.5

California Texas New York Florida Illinois Indiana Wisconsin Missouri Kentucky Iowa

Trill

ions

Top 5 Largest State EconomiesStates Neighboring Illinois

U.S. Rank: 5

2

3

4

1

16 2030

2228

152653_Chp 1_pgs1-9.indd 4 5/18/15 11:21 AM

CHAPTER 1 | 5

Metro-Area Employment in Illinois Is Very Different from Non-MetroIndustry Employment as a Percent of Total Area Employment, Metro and Non-Metro Illinois (2013)

State economies are diverse, and different areas of a state often have unique local economies, something that can be seen by comparing the largest sectors (based on the share of area total employment) in metro versus non-metro Illinois.

For example, agriculture makes up 10.2 percent of Illinois’ non-metro employment but only 0.5 percent of metro-area employment. Similarly, while manufacturing, retail, and state and local government are prominent in both areas, these sectors make up a larger share of employment in non-metro areas of the state.

0.5%

6.7%

7.4%

2.2%

4.0%

2.9%

1.7%

6.8%

11.5%

1.6%

1.6%

7.6%

0.2%

6.0%

7.6%

3.8%

9.3%

9.7%

4.3%

0.3%

4.3%

10.2%

5.9%

3.7%

1.2%

4.8%

1.0%

1.1%

5.1%

11.1%

1.2%

0.3%

11.3%

2.3%

6.3%

2.9%

2.5%

11.0%

13.0%

4.4%

0.7%

3.7%

0% 2% 4% 6% 8% 10% 12% 14%

Agriculture, Forestry, & Fishing

Accommodation & Food Services

Administrative & Support Services

Arts, Entertainment, & Recreation

Construction

Educational Services

Federal Government

Finance & Insurance

Healthcare & Social Assistance

Information

Management

Manufacturing

Mining

Other Services (Except Government)

Professional, Scientific, & Technical Services

Real Estate

Retail Trade

State & Local Government

Transportation & Warehousing

Utilities

Wholesale Trade

MetroNon-Metro

Note: Counties designated by the Bureau of Economic Analysis as metropolitan are Alexander, Bond, Boone, Calhoun, Champaign, Clinton, Cook, DeKalb, DeWitt, DuPage, Ford, Grundy, Henry, Jackson, Jersey, Kane, Kankakee, Kendall, Lake, McHenry, McLean, Macon, Macoupin, Madison, Marshall, Menard, Mercer, Monroe, Peoria, Piatt, Rock Island, St. Clair, Sangamon, Stark, Tazewell, Vermilion, Will, Williamson, Winnebago, and Woodford.Source: Bureau of Economic Analysis, Regional Economic Accounts, Local Area Personal Income and Employment.

152653_Chp 1_pgs1-9.indd 5 5/18/15 11:21 AM


Illinois’ Economy Is Moving away from Goods and toward ServicesServices and Goods as a Percent of Total Private State GDP, Illinois Statewide (1963-2013)

Five decades ago, economic sectors involving the production of tangible goods—agriculture, manufacturing, construction, and mining—made up approximately 40 percent of the Illinois economy (based on the share of state GDP). Today, those sectors only comprise 20 percent of the state’s economy, while service-providing industries make up the remaining 80 percent.

Source: Bureau of Economic Analysis, Regional Economic Accounts, Gross Domestic Product (GDP) by State, “GDP in current dollars.”

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

1963 1968 1973 1978 1983 1988 1993 1998 2003 2008 2013

Goods

Services

152653_Chp 1_pgs1-9.indd 6 5/18/15 11:21 AM

CHAPTER 1 | 7

Professional & Business Services, Private Education & Health Services, and Government Employ the Most People in IllinoisPercent of Total Nonfarm Employment by Sector, Illinois Statewide (2013)

The majority of employees in Illinois work in service-providing sectors. The professional and business services sector employs the greatest percentage of workers at 15.6 percent of all employees. Other large employer industries include private-sector education and health services firms (15.2 percent), state and local government including public schools (12.5 percent), retail businesses (10.5 percent), manufacturing firms (10.2 percent), and leisure and hospitality businesses (9.6 percent).

0.5%3.4%

10.2%

0.4%

5.2%

10.5%

4%

1.7%

4.9%

1.3%

15.6%

15.2%

9.6%

3.6%

1.4%

12.5%

Natural Resources & Mining

Construction

Manufacturing

Utilities

Wholesale Trade

Retail Trade

Transportation & Warehousing

Information

Finance & Insurance

Real Estate, Rental, & Leasing

Professional & Business Services

Private Education & Health Services

Leisure & Hospitality

Other Misc. Services &

Unclassified

Federal Government

State and Local Government

Note: Percentages may not add to 100 due to rounding.Source: Bureau of Labor Statistics, Quarterly Census of Employment and Wages (Illinois Statewide for All establishment sizes, All Employees, Private establishments).

152653_Chp 1_pgs1-9.indd 7 5/18/15 11:21 AM


Illinois Has Seen Consistent Out-Migration over the Last 20 YearsMigration to and from Illinois Based on the Number of Federal Tax Exemptions Claimed (1993-2011)

Since the early 1990s, Illinois has seen a net of 1,004,952 people leave the state, with net out-migration occurring each and every year since then. While people move for many reasons, this is still an important metric for a state to measure. Illinois has lost the most people to Florida, Indiana, Wisconsin, Texas, and Arizona. It has gained the most people from Michigan, Ohio, New York, New Jersey, and Pennsylvania.

Source: Internal Revenue Service, Statistics of Income Tax Stats, “State-to-State Migration Data.”

0

50,000

100,000

150,000

200,000

250,000Into Illinois Out of Illinois

1992-1993

1993-1994

1994-1995

1995-1996

1996-1997

1997-1998

1998-1999

1999-2000

2000-2001

2001-2002

2002-2003

2003-2004

2004-2005

2005-2006

2006-2007

2007-2008

2008-2009

2009-2010

2010-2011

152653_Chp 1_pgs1-9.indd 8 5/18/15 11:21 AM

CHAPTER 1 | 9

Unemployment Rate in Illinois Tends to Be Higher than the U.S. RateMonthly Seasonally Adjusted Unemployment Rate, Illinois and U.S. (1976-2014)

Since the early 1980s, Illinois’ unemployment rate has generally exceeded that of the U.S., except for a period in the mid-1990s. The rate in Illinois hit highs in the early 1980s (12.9 percent) and early 2010 (11.4 percent), both of which were significantly higher than the U.S. rate at those times. As of December 2014, the Illinois rate still exceeded that of the U.S.

Source: Bureau of Labor Statistics, Local Area Unemployment Statistics.

0%

2%

4%

6%

8%

10%

12%

14%

1976 1981 1986 1991 1996 2001 2006 2011

Seasonally Adjusted Unemployment Rate, Illinois and U.S. (1976-

Illinois

U.S.

152653_Chp 1_pgs1-9.indd 9 5/18/15 11:21 AM

10

Illinois’ state and local governments rely on several types of taxes to raise revenue. Property taxes, income taxes, and sales taxes are well known, but other revenue sources include excise taxes, the estate tax, a tax on capital stock (known as the franchise tax), and funding from the federal government, among others.

In general, Illinoisans face a high state and local tax burden. Inflation-adjusted tax collections have risen over time, from $17.4 billion in 1961 to $66.5 billion in 2011. The composition of those collections has changed as well. The local share of collections has become smaller, and the state share has increased.

While the level of taxes levied matters, the structure of each tax is equally important. Each tax type has pros and cons, and each can contribute to or detract from a state’s overall tax climate. Similarly, other budgetary issues, such as federal funding levels and unfunded liabilities, should also be kept in mind when evaluating a state’s revenue structure.

Illinois’ Tax Code: The Basics

CHAPTER 2

Illinois State Capitol, photo: Jasperdo

152653_Chp 2_pgs10-20.indd 10 5/18/15 11:25 AM

CHAPTER 2 | 11

Illinois Taxes at a GlanceThis page provides a brief, broad overview of tax rates, tax collections, and other basic structural features of the Illinois tax system.

Note: All collections listed on this page are combined state and local per capita collections for the 2012 fiscal year. Income, federal aid, and state debt are for 2013. Individual and corporate income tax rates are ranked according to the top rate if a state has a graduated-rate individual or corporate income tax. Since individual and corporate income tax rates decreased at the beginning of 2015, these changes are not yet reflected in the individual and corporate income tax collections data that is as of the 2012 fiscal year. Illinois corporations face two separate income taxes: a regular corporate income tax and a corporate income tax enacted to replace the personal property tax. We present the combined rate. “State debt” is defined as the total outstanding debt at the end of the fiscal year, as defined by the Census Bureau.Source: Tax Foundation, Facts & Figures 2015: How Does Your State Compare?

Individual Income TaxNumber of brackets 1Tax rate 3.75%Tax rate rank 40Tax base Federal adjusted

gross income with modifications

Collections per capita $1,206Collections rank 11

Property TaxCollections per capita $1,985Collections rank 10Effective residential property tax rate

2.32%

Effective rate rank 2

Sales TaxState rate 6.25%State + average local rate 8.19%State + average local rank 10Collections per capita $749Collections rank 39

Corporate Income TaxNumber of brackets 1Tax rate 7.75%Tax rate rank 17Collections per capita $272 Collections rank 7

Excise Taxes Rate Rank

Gasoline taxes and fees

30.72¢ per gallon

15

Cigarette taxes $1.98 per pack

16

Spirits taxes $8.55 per gallon

14

Wine taxes $1.39 per gallon

11

Beer taxes $0.23per gallon

26

Cell phone taxes 15.81% 5

General Info Rank Nat. Avg.

Income per capita $46,980 16 $44,765Federal aid as % of gen. revenue

25.9% 40 30.0%

State debt per capita

$4,944 6 $3,611

Other TaxesGross receipts tax NoneCapital stock tax 0.10%Inheritance tax None Estate tax 0.8% - 16.0%

For all rankings on this page, 1 indicates the highest rank among the 50 states.

152653_Chp 2_pgs10-20.indd 11 5/18/15 11:25 AM


State Tax Collections Have Grown Faster than Local CollectionsIllinois’ Combined State and Local Tax Collections (1961-2012, in 2012 Dollars)

Illinois’ inflation-adjusted total state and local tax collections have risen from approximately $17.4 billion in 1961 to $66.5 billion in 2012. Since 1961, state tax collections have grown from 39 percent of the combined total to 55 percent. Meanwhile, local tax collections have decreased from 61 percent of the total to 45 percent.

Note: Dollar amounts are inflation-adjusted based on the annual average Consumer Price Index for All Urban Consumers (CPI-U) with a 2012 base year. Because local data is unavailable for 2001 and 2003, those points were excluded here, and points surrounding these years are connected with dotted lines. Chart shows collections, not distributions. Source: Census Bureau, State and Local Government Finances.

In 2011, individual and corporate income tax rates were increased.

$0

$10

$20

$30

$40

$50

$60

$70

Billi

ons

1961 1966 1971 1976 1981 1986 1991 1996 2001 2006 2011

State Tax Collections

Local Tax Collections

152653_Chp 2_pgs10-20.indd 12 5/18/15 11:25 AM

CHAPTER 2 | 13

Compared to the Entire U.S., Illinois Relies More on Property Taxes, Less on Sales TaxesPercent of Total Combined State and Local Tax Collections by Tax Type, Illinois and U.S. (2012)

Illinois obtained the largest share of state and local combined collections in 2012 from property taxes (38 percent of total), followed by individual income taxes (23 percent) and general sales taxes (15 percent). The Illinois property tax share is higher than the U.S. average, and the sales tax share is lower. Corporate income taxes make up the smallest share of collections in both Illinois and the U.S. as a whole, although Illinois relies on them a slightly more than other states.

CorporateIncome Tax

5%

CorporateIncome Tax

3%

Other Taxes6%

Other Taxes8%

Property Taxes38%

Individual Income Tax

23%

ExciseTaxes13%

Sales Taxes15%

Property Taxes32%

Individual Income Tax

22%

Excise Taxes13%

Sales Taxes23%

Illinois

All States

Note: Percentages may not add to 100 due to rounding. Source: Census Bureau, State and Local Government Finances.

152653_Chp 2_pgs10-20.indd 13 5/18/15 11:25 AM


Corporate Income Taxes Are Illinois’ Most Volatile State TaxAnnual Percent Change in Illinois’ State Tax Collections by Tax Type (1978-2012)

Revenue stability over the business cycle is an important facet of state tax policy. Different types of taxes react differently to changes in the economy. In Illinois, corporate income taxes fluctuate the most, followed by individual income and sales taxes.

Source: Census Bureau, State and Local Government Finances.

152653_Chp 2_pgs10-20.indd 14 5/18/15 1:57 PM

CHAPTER 2 | 15

Illinois, like All States, Relies Heavily on Federal AidFederal Funding as a Percent of State Government General Revenues (FY 2013)

While state and local taxes are a large component of state revenue toolkits, federal transfers are also surprisingly sizeable. Illinois relied on federal funding for 25.9 percent of general revenues in 2013, compared to the national average of 30.0 percent. Federal funding in the states supports a variety of programs, including those related to public welfare, health, education, and transportation.

Note: Figures are calculated by dividing the amount of each state’s “intergovernmental revenues” from the federal level to the state level by the state’s “general revenue,” as estimated by the Census Bureau. General revenue includes all taxes but excludes utility, liquor store, and insurance trust revenue. DC is not included because it is designated as a local jurisdiction.Source: Census Bureau, State and Local Government Finances.

HigherPercent

LowerPercent

152653_Chp 2_pgs10-20.indd 15 5/18/15 11:25 AM


Illinois’ Business Tax Climate Is Middle-of-the-PackIllinois Ranks 31st out of 50 in the State Business Tax Climate Index (2015)

The State Business Tax Climate Index gauges how well-structured each state’s tax code is for business. States that score well on the Index have broad bases and low rates, but Illinois has narrow bases and high rates on many taxes. Illinois is ranked 31st in the country.

Note: A rank of 1 indicates the state’s tax system is more favorable for business; a rank of 50 indicates the state’s tax system is less favorable for business. Snapshot date is July 1, 2014. DC’s rank does not affect other states’ rankings, but the figure in parentheses indicates where it would rank if included. Source: Tax Foundation, 2015 State Business Tax Climate Index.

VA#27

NC #16

SC#37

GA#36

FL#5

AL#28MS

#18

TN #15

KY #26

OH#44IN

#8IL

#31

MO#17

AR#39

LA #35

IA#41

MN#47

WI#43 MI

#13PA#34

NY#49

ME#33

TX#10

OK#32

KS#22

NE#29

SD#2

ND#25

MT#6

WY#1

CO#20

NM#38

AZ#23

UT#9

NV#3

ID#19

OR#12

WA#11

CA#48

AK#4

HI#30

WV#21

#24

#45

#42

#50

#14

#40

(#45)

MA

RI

CT

NJ

DE

MD

DC

#46VT

#7NH

10 Best Business Tax Climates10 Worst Business Tax Climates

152653_Chp 2_pgs10-20.indd 16 5/18/15 11:25 AM

CHAPTER 2 | 17

Overall Rank

Corporate Tax Rank

Individual Income Tax Rank

Sales Tax Rank

Unemployment Insurance Tax Rank

Property Tax Rank

Indiana 8 22 10 10 7 5Michigan 13 10 14 7 47 27Missouri 17 4 29 29 12 7Kentucky 26 29 30 11 45 17Illinois 31 47 11 34 38 44Iowa 41 49 32 23 33 38Wisconsin 43 33 43 14 27 31

Illinois’ Business Tax Climate Falls behind Most Neighboring StatesState Business Tax Climate Index Rankings for Illinois and Neighboring States (2015)

Breaking the State Business Tax Climate Index into its subcomponents allows us to compare the structure of each major tax type. Nearly all neighboring states have better corporate tax codes than Illinois. However, many Illinois businesses file income taxes through the individual income tax code, where Illinois scores relatively well compared to most of its neighbors. Illinois scores poorly in terms of sales tax, unemployment insurance tax, and property tax.

Note: A rank of 1 indicates the state’s tax system is more favorable for business; a rank of 50 indicates the state’s tax system is less favorable for business. Snapshot date is July 1, 2014. Component rankings do not average to the overall rank. States without a given tax rank equally as number 1 in that component. Source: Tax Foundation, 2015 State Business Tax Climate Index.

152653_Chp 2_pgs10-20.indd 17 5/18/15 11:25 AM


Illinois’ Tax Burden Ranks Higher than Most Other States’ BurdensTotal State-Local Tax Burden as a Percent of State Residents’ Income, Illinois and Neighboring States (FY 2011)

Illinois’ total state-local tax burden is ranked 13th highest in the country and above most of its neighbors. The average Illinois taxpayer paid $4,658 in state and local taxes in 2011, amounting to 10.2 percent of state residents’ total income. Illinoisans pay approximately 74 percent of their total tax burden to state and local governments in Illinois and pay the remaining share to out-of-state jurisdictions.

0% 2% 4% 6% 8% 10% 12%

Missouri

Iowa

Indiana

Kentucky

Michigan

Illinois

Wisconsin

9.0%

9.3%

9.5%

9.5%

9.6%

10.2%

11.0%

Share of income paid to own state

Share of income paid to other states

Note: Total state-local tax burden includes all taxes levied by state and local governments. For a full list of taxes included, see Tax Foundation Working Paper No. 10.Source: Tax Foundation, Annual State-Local Tax Burden Ranking (FY 2011).

Illinois taxpayers pay state and local taxes not only to Illinois but also to other state and local governments due to tax shifting across state lines. For example, sales and excise taxes are paid by nonresident tourists when they travel to other states and spend money on lodging and food.

152653_Chp 2_pgs10-20.indd 18 5/18/15 11:25 AM

CHAPTER 2 | 19

Illinois’ Tax Burden Is Now Higher than the U.S. AverageTotal State-Local Tax Burden as a Percent of State Income, Illinois and U.S. Average (FY 2011)

Since 1977, state and local tax burdens in Illinois have fluctuated around the U.S. national average. In the late 1970s through the late 1980s, tax burdens in Illinois were higher than average. That trend flipped in the early 1990s through the early 2000s. Since 2008, Illinois’ tax burdens have exceeded that of the U.S.

Note: For a full list of definitional terms and methodology, see Tax Foundation Working Paper No. 10. Source: Tax Foundation, Annual State-Local Tax Burden Ranking (FY 2011).

U.S. Average

Illinois

8.0%

8.5%

9.0%

9.5%

10.0%

10.5%

11.0%

1977 1982 1987 1992 1997 2002 2007

Three things can change a state’s tax burden as a share of income: changes in taxes paid to other states, changes in taxes paid to the home state, and changes in state income.

152653_Chp 2_pgs10-20.indd 19 5/18/15 11:25 AM


Illinois Has the Most Under-Funded Public Pensions in the CountryFunded Portion of State-Sponsored Pension Plans (2012)

Public pensions, or the retirement benefits promised to public employees, are an important state budgetary consideration. The degree to which a state meets these obligations offers a glimpse of that state’s financial soundness. This measure is referred to as a “funded ratio” because it estimates the amount of pension obligations that a state can pay at this time. As of 2012, Illinois could only pay for 40.4 percent of existing public pension liabilities—the least in the nation.

Note: “Funded Ratio” is defined as actuarial value of assets divided by actuarial accrued liabilities.Source: Standard & Poor’s Ratings Services, U.S. State Pension Funding: Strong Investment Returns Could Lift Funded Ratios, But Longer-Term Challenges Remain, Table 3A (June 2014).

152653_Chp 2_pgs10-20.indd 20 5/18/15 11:25 AM

21

Among the states that levy income taxes on wages and salaries, Illinois is one of seven that has a single-rate, rather than graduated-rate, tax structure. As of 2015, the Illinois rate is one of the lowest in the country at 3.75 percent. This has positive implications for both individual and business taxpayers.

Illinois lawmakers responded to the most recent recession with an individual income tax increase, which began to sunset at the end of 2014. Prior to this, the Illinois rate had generally seen an upward trend over time (except for brief fluctuations in the 1980s).

But rates are only one component of the overall tax structure—the tax base matters too. Illinois has many high-cost individual income tax expenditures that carve away at the income tax base. The most notable is the expenditure for retirement income, which amounted to $2.23 billion in 2013.

The 2011 rate increase had one striking result: Illinois’ individual income tax collections per person in 2012 were higher than the all-state average. This was a recent change, however. Prior to 2011 and at least as far back as the late 1970s, Illinois’ collections per person had always been below the U.S. average.

Individual Income Tax in Illinois

CHAPTER 3

Peoria City Hall, photo: Scott McLeod

152653_Chp 3_pgs21-26.indd 21 5/18/15 11:32 AM

22 | ILLINOIS ILLUSTRATED CHAPTER 1 | 22

Illinois’ Individual Income Tax Rate Has Fluctuated over TimeIndividual Income Tax Rate, Illinois (1969-2015)

The Illinois individual income tax has a history of temporary increases, one of which was made permanent. The tax was originally created in 1969 with a rate of 2.5 percent levied on all incomes. After brief fluctuation in the 1980s, the rate increased to 3 percent in the early 1990s. The rate remained constant for two decades before a temporary rate increase was enacted in 2011. Rates dropped to 3.75 percent at the start of 2015 and are scheduled to drop further to 3.25 percent in 2025.

Source: Illinois Department of Revenue, Tax Rate Database; Illinois Economic and Fiscal Commission, Illinois Individual Income Tax (May 2002); Illinois General Assembly, Illinois Compiled Statutes.

0%

1%

2%

3%

4%

5%

6%

1969 1974 1979 1984 1989 1994 1999 2004 2009 2014

A temporary rate increase occurredin 2011 and began to sunset in 2015.

The rate fluctuated between 2.5 and 3 percent in the 1980s.

A temporary rate increase enacted in 1989 (changing the rate to 3 percent) was made permanent in the early 1990s.

Illinois’ individual income tax was originally enacted in 1969.

152653_Chp 3_pgs21-26.indd 22 5/18/15 11:32 AM

CHAPTER 3 | 23

Illinois’ Individual Income Tax Collections per Person over TimeTotal State and Local Individual Income Tax Collections per Capita, Illinois and U.S. (1977-2012, in 2012 Dollars)

Prior to 2012, inflation-adjusted individual income tax collections per person in Illinois were lower than state and local collections in the country on average. In 2012, however, this trend flipped due to a substantial increase in Illinois’ individual income tax rate.

Note: Dollar amounts are inflation-adjusted based on the annual average Consumer Price Index for All Urban Consumers (CPI-U) with a 2012 base year. Because local data is unavailable for 2001 and 2003, those points were excluded here, and points surrounding these years are connected with dotted lines.Source: Census Bureau, State and Local Government Finances; Census Bureau, American Community Survey; Bureau of Labor Statistics, Consumer Price Indexes.

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

1977 1982 1987 1992 2002 20071997 2012

Illinois

All States

152653_Chp 3_pgs21-26.indd 23 5/18/15 11:32 AM


Illinois Tax BillJack Jason &

NicoleJustine Max &

DanielleSam & Ellen

Heidi & Bret

Filing Status Head of Household

Married Filing Jointly Single Married

Filing JointlyMarried


Filing Jointly

Income $15,930 $38,304 $33,113 $83,546 $413,378 $1,747,714

Exemptions 2 2 1 4 2 4

Income Taxes Paid to Illinois $106 $0 $1,161 $2,810 $15,340 $65,217

Effective Tax Rate (ETR), Illinois

0.7% 0.0% 3.5% 3.4% 3.7% 3.7%

ETR, Federal + Illinois -20.1% 0.0% 12.4% 12.1% 26.9% 33.7%

Retired

How Does the Illinois Individual Income Tax Impact Real People?The way a state chooses to structure its income tax matters for real people. These six scenarios show how low- or high-income Illinois taxpayers with or without children fare under the code in Illinois and its six neighboring states.

Note: All calculations are made for the 2015 tax year and reflect state statutes and tax rates as of January, 1, 2015. This assumes an equal split of income between spouses, all income was earned in the state of filing, no estimated tax payments were made in advance, and there were no interest or penalties charged. This does not include Illinois’ property tax credit.Source: State statutes and forms; Tax Foundation calculations.

152653_Chp 3_pgs21-26.indd 24 5/18/15 11:32 AM

CHAPTER 3 | 25

Tax Bills in Other Select States in the Region

If these same Illinoisans lived in one of the states below, these would be their income tax bills.

Jack Jason & Nicole

Justine Max & Danielle

Sam & Ellen

Heidi & Bret

Filing Status Head of Household

Married Filing Jointly Single Married



Filing Jointly

Income $15,930 $38,304 $33,113 $83,546 $413,378 $1,747,714

Exemptions 2 2 1 4 2 4

Total Taxes Paid in:

Illinois $106 $0 $1,161 $2,810 $15,340 $65,217

Indiana $146 $359 $1,060 $2,592 $13,575 $57,510

Iowa -$228 $148 $1,294 $4,410 $24,177 $88,810

Kentucky $1 $1,878 $1,587 $4,495 $22,826 $91,721

Michigan $139 $1,288 $1,237 $2,871 $17,229 $73,598

Missouri $136 $1,233 $1,342 $3,864 $23,738 $103,714

Wisconsin -$132 $1,050 $1,233 $4,292 $26,704 $128,674

Retired

Note: All calculations are made for the 2015 tax year and reflect state statutes and tax rates as of January, 1, 2015. This assumes an equal split of income between spouses, all income was earned in the state of filing, no estimated tax payments were made in advance, and there were no interest or penalties charged. This does not include Illinois’ property tax credit or local income taxes, which are levied in some states and can be substantial (Indiana, Iowa, Kentucky, Michigan, and Missouri have local income taxes).Source: State statutes and forms; Tax Foundation calculations.

152653_Chp 3_pgs21-26.indd 25 5/18/15 11:32 AM


Illinois Spent $4.35 Billion on Individual Income Tax Expenditures in 2013Individual Income Tax Expenditures, by Amount and Percent of Total (FY 2013)

A tax expenditure is an activity that has been specifically exempted from taxation via a subtraction, exclusion, deduction, credit, or some other means. Individual income tax expenditures in Illinois totaled approximately $4.35 billion in 2013. The largest expenditure (amounting to over half of the total) was the subtraction for retirement income, followed by the standard exemption (25 percent of the total) and the credit for residential property taxes paid (13 percent).

Source: State of Illinois Comptroller, Tax Expenditure Report (Fiscal Year 2013).

Retirement Income$2.23 billion (51%)

Standard Exemption$1.11 billion (25%)

Residential Property Taxes Credit

$547.8 million (13%)

Earned Income Tax Credit$162.2 million (4%)

Education Expense Credit$79.7 million (2%)

Blind & Elderly Exemptions$34.6 million (1%)

Other Credits & Subtractions$95.3 million (4%)

152653_Chp 3_pgs21-26.indd 26 5/18/15 11:32 AM

27

All taxes paid by businesses are ultimately borne by people—whether it’s in the form of higher prices, lower wages, or smaller returns on investment. In Illinois, businesses paid $32.3 billion in total taxes in 2013, primarily toward taxes other than the corporate income tax (the most recognizable type of business tax). In reality, many firms are pass-through entities such as limited liability companies (LLCs), S-corporations, and sole proprietorships that pay individual income taxes rather than corporate income taxes. Businesses also pay property, sales, and excise taxes, among others.

Illinois’ business tax structure has several flaws. Not only is the corporate income tax rate comparatively high both regionally and nationally, the state has many business incentives that carve away at the tax base. Additional detrimental features exist, including application of the sales tax to several business inputs, lack of horizontal equity, and existence of a capital stock tax (a tax that most states have eliminated).

Business Taxes in IllinoisCHAPTER 4

Chicago O’Hare International Airport, photo: N i c o l a

152653_Chp 4_pgs27-33.indd 27 5/18/15 11:40 AM


Businesses Don’t Just Pay Corporate Income TaxesIllinois’ Total State and Local Business Tax Liability by Tax Type (FY 2013)

A common misconception is that corporate income taxes are the only tax cost for businesses. However, businesses pay a number of other taxes, including property taxes on real estate, sales taxes on the goods they use, and individual income taxes on business income (if they’re pass-through entities that file through the individual income tax code rather than the corporate income tax code).

Overall, Illinois businesses paid $32.3 billion in taxes in 2013, with the largest portion going to property taxes.

Source: Council on State Taxation and Ernst & Young LLP, Total state and local business taxes (FY 2013).

$4.7b $4.5b$3.8b

$3.3b

$1.6b

$0

$2

$4

$6

$8

$10

$12

$14

ExciseTaxes

CorporateIncome Tax

SalesTax

Unempl.Insurance

Tax

License andOther Taxes

Billi

ons

$12.8b

PropertyTaxes

$1.5b

IndividualIncome Tax

152653_Chp 4_pgs27-33.indd 28 5/18/15 11:40 AM

CHAPTER 4 | 29

Businesses Pay Individual Income Taxes TooPercent of Employer Businesses that Are Pass-Through Entities in Illinois’ Ten Largest Private Industries (2011)

Firms that pay individual income taxes rather than corporate income taxes are known as “pass-through” or “flow-through” entities because business income “flows through” to the owner’s individual income tax return. Sole proprietorships, partnerships, and S- corporations are all types of pass-throughs.

Sixty-one percent of all employers with payroll in Illinois are pass-through entities, but that share varies for specific sectors of the economy. However, it’s important to note that even though this page breaks down the total number of employer firms, when we consider the aggregate number of workers at businesses with payroll in Illinois, most of them work at traditional corporations (known as C-corporations).

Note: Industries listed are the ten largest private sector industries in Illinois as determined by share of total state GDP. This does not include non-employer firms. Source: Census Bureau, County Business Patterns; Bureau of Economic Analysis, Regional Economic Accounts, Gross Domestic Product (GDP) by State, “GDP in current dollars.”

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

Real Estate

Manufacturing

Healthcare & Social Assistance

Professional, Scientific, &Technical Services

Finance & Insurance

Wholesale Trade

Retail Trade

Information

Construction

Administrative & SupportServices

-Through Entities in Illinois' Ten Largest Private Industries

Sole Proprietorships Partnerships S-Corporations

69.5%

60.4%

38.2%

51.3%

54.0%

48.2%

76.6%

58.2%

69.8%

77.7%

152653_Chp 4_pgs27-33.indd 29 5/18/15 11:40 AM


Effective Tax Rates Vary Widely by Industry and Age of Firm Total Effective Tax Rates for Select Illinois Business Types, New and Mature Firms (2015)

The Tax Foundation’s Location Matters study calculates the tax bills in every state for 14 hypothetical firms (one new and one mature) in seven different industries. Under the existing Illinois tax code, new and mature firms tend to be treated differently. This feature is most pronounced in the retail industry, among distribution centers, and for capital-intensive manufacturing firms. Ideally, firms in the same industry should face the same effective tax rate, regardless of whether they are new or mature.

Note: Total effective tax rate only includes state and local tax liability, not federal tax liability. Source: Tax Foundation, Location Matters: A Comparative Analysis of State Tax Costs to Business (2015, forthcoming).

New Firms Mature Firms

6.5%

10.0%

29.3%

25.5%

14.3%

17.0%

33.1%

14.2% 14.4%

26.9%

36.0%

18.3%

14.5%

19.7%

0%

5%

10%

15%

20%

25%

30%

35%

40%

Capital-IntensiveManufacturing

Operation

Labor-IntensiveManufacturing

Operation

Call Center Distribution Center CorporateHeadquarters

Research andDevelopment

Facility

Retail Store

152653_Chp 4_pgs27-33.indd 30 5/18/15 11:40 AM

CHAPTER 4 | 31

Corporate Income Tax Rate Has Fluctuated over TimeIllinois’ Total Corporate Income Tax Rate (1969-2015)

Illinois’ corporate income tax is the 17th highest in the nation. The 7.75 percent rate includes two components: the general corporate income tax (with a current rate of 5.25 percent levied on net income) and what is known as the “Personal Property Replacement Tax” (PPRT) (an additional 2.5 percent rate, also levied on net income). The PPRT was added in 1979 to make up for reduced local tax revenues as a result of the removal of business personal property taxes.

Note: “Total Corporate Income Tax Rate” includes the corporate income tax and Personal Property Replacement Tax.Source: Illinois General Assembly, Illinois Compiled Statutes; Illinois Economic and Fiscal Commission, Illinois Corporate Income Tax (July 2002).

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

1969 1974 1979 1984 1989 1994 1999 2004 2009 2014

Illinois' general corporate income tax was enacted in 1969 at a rate of 4%.

The PPRT rate decreased to 2.5% in 1981, dropping the total rate to 6.5%.

The general corporate rate temporarily increased to 7% in 2011, making the total rate 9.5%. This higher rate partially sunset in 2015.

In mid-1989, the general corporate rate increased to 4.8%, raising the total rate to 7.3%.

In 1983 and part of 1984, the general corporate income tax rate briefly increased. The total rate went back to 6.5% in mid-1984.

In 1979, a 2.85% Personal Property Replacement Tax (PPRT) was added on top of the general corporate income tax, creating a total rate of 6.85%.

152653_Chp 4_pgs27-33.indd 31 5/18/15 11:40 AM


Corporate Income Tax Collections per Person Are VolatileTotal State and Local Corporate Income Tax Collections per Capita, Illinois and U.S. (1977-2012, in 2012 Dollars)

Corporate income tax collections per person in Illinois are currently higher than the U.S. level and have fluctuated widely over time. While corporate income taxes are often a popular tool among state lawmakers for funding state governments, they are an unreliable tool because of their instability over the business cycle.


$0

$50

$100

$150

$200

$250

$300

1977 1982 1987 1992 1997 2002 2007 2012

Illinois

All States

152653_Chp 4_pgs27-33.indd 32 5/18/15 11:40 AM

CHAPTER 4 | 33

Illinois Is One of Only 18 States that Levies a Capital Stock TaxStates with and without Capital Stock Taxes (as of January 1, 2015)

Less than half of the states in the U.S. levy a capital stock tax, an economically-damaging business tax imposed at a low rate but directly on business capital. These taxes are levied on the net assets or market capitalization of a business entity. The Illinois capital stock tax is formally known as the “Corporate Franchise Tax” and is levied at a rate of 0.1 percent up to a maximum payment value of $2 million, with additional taxes due upon the occurrence of various corporate events (such as a merger or issuance of new stock). Some states have much lower maximum payment amounts, such as Georgia ($5,000), Nebraska ($11,995), Alabama ($15,000), Oklahoma ($20,000), and Delaware ($180,000). Others have no limit.

Note: Missouri, New York, and Pennsylvania are in the process of phasing out their capital stock taxes. Rhode Island and West Virginia just finished phasing out their capital stock taxes. (*) indicates that taxpayers pay the greater of corporate income tax or capital stock tax liability. See Table 33 of Tax Foundation, Facts & Figures 2015 for more information.Source: Tax Foundation, Facts & Figures 2015: How Does Your State Compare?

VA

NC

SC

GA

FL

ALMS

TN

KY

OHINIL

MO

AR

LA

IA

MN

WIMI

PA

NY*

ME

TX

OK

KS

NE

SD

NDMT

WY*

CO

NMAZ

UTNV

IDOR

WA

CA

AK

HI

WV

MA

RI

CT*

NJ

DE

MD

DC

VT NH

State Has a Capital Stock TaxState Is Phasing out a Capital Stock TaxState Does Not Have a Capital Stock Tax

152653_Chp 4_pgs27-33.indd 33 5/18/15 11:40 AM

34

Illinois’ sales tax rate is high compared to both the region and the nation in part due to a high state-level tax but also as a result of additional local option sales taxes. The state-level rate has generally increased over time, and this can be partially attributed to a shrinking tax base.

The shrinking sales tax base is not unique to Illinois. States tend to levy sales taxes on goods, even though the services sector now makes up a much larger share of the economy than when sales tax statutes were written in the 1930s. Over time, the decreasing tax base has contributed to the stagnation of sales tax collections per person in Illinois, even as the rate has increased.

Sales Taxes in IllinoisCHAPTER 5

Chicago Food Trucks, photo: Jaysin Trevino

152653_Chp 5_pgs34-39.indd 34 5/18/15 11:42 AM

CHAPTER 5 | 35

Illinois Has the Highest Combined Average Sales Tax Rate among Its NeighborsCombined State and Average Local Sales Tax Rates, Illinois and Neighbors (as of July 1, 2014)

Sales taxes in most states are levied at both the state and local levels. Illinois’ state-level rate (6.25 percent), which is already high compared to other states, is made higher by the additional local taxes that are tacked on top.

When both are considered, Illinois has the highest combined average rate among its neighbors and the 10th highest rate in the country. Local sales taxes, on average, amount to 1.94 percent. Indiana, Kentucky, and Michigan do not levy local sales taxes.

Source: Tax Foundation, Facts & Figures 2015: How Does Your State Compare?

Total Sales Tax RateNational Rank

KY

INIL

MO

IA6.78%

7.81%

8.19% 7%

6%

6%

5.43%

37

21

37

44

10

27

14

WIMI

152653_Chp 5_pgs34-39.indd 35 5/18/15 11:42 AM


State-Level Sales Tax Rate Has Risen over TimeIllinois’ State Sales Tax Rate (1933-2015)

Since its creation in 1933, Illinois’ state sales tax rate has more than tripled from 2 percent to 6.25 percent today. Except for two brief rate decreases (one in 1941 and another in 1969), the sales tax rate has increased over time. The current state-level rate of 6.25 percent is the 12th highest in the country. Note: This does not include local option sales taxes (see

previous page).Source: Illinois Commission on Government Forecasting and Accountability, Sales Taxes in Illinois (May 2010); Commerce Clearing House.

0%

1%

2%

3%

4%

5%

6%

7%

1933 1943 1953 1963 1973 1983 1993 20132003

152653_Chp 5_pgs34-39.indd 36 5/18/15 11:42 AM

CHAPTER 5 | 37

Illinois’ Sales Tax Applies to Less and Less of the EconomyIllinois’ Sales Tax Breadth (1970-2013)

An ideal sales tax is one that is levied on all final consumer purchases. By taxing a large number of transactions, the rate can be kept low and still raise sufficient revenue.

When sales taxes were created in the 1930s, they were levied on tangible goods, which at the time were a large part of the overall economy. However, the economy has become more service based since then. As a result, the sales tax is not nearly as productive. Further, by failing to tax consumer services, the sales tax inherently favors the services sector of the economy over the goods sector.

Note: Sales tax breadth is defined as the ratio of the implicit sales tax base to state personal income.Source: Professor John Mikesell (Indiana University).

0%

10%

20%

30%

40%

50%

60%

1970 1975 1980 1985 1990 1995 2000 2005 2010

152653_Chp 5_pgs34-39.indd 37 5/18/15 11:42 AM


Even with High Rates, Illinois Has Lower Sales Tax Collections per Person than the U.S.Total State and Local Sales Tax Collections per Capita, Illinois and U.S. (1977-2012, in 2012 Dollars)

Illinois’ state and local sales tax collections per person are much lower than the U.S. average, despite the fact that the state has a comparatively high total sales tax rate. While inflation-adjusted total U.S. collections exhibit an upward trend over time, Illinois’ collections have remained relatively flat, despite several historical rate increases.


Illinois

All States

$0

$200

$400

$600

$800

$1,000

$1,200

1977 1982 1987 1992 1997 2002 2007 2012

152653_Chp 5_pgs34-39.indd 38 5/18/15 11:42 AM

CHAPTER 5 | 39

Not All Sales Tax Expenditures Are Created EqualIllinois’ Sales and Use Tax Expenditures, by Type (FY 2013)

When states quantify tax expenditures, they often mistakenly lump structural provisions with social policy carve-outs, when the two should be distinct. The former are tools used to ensure the sales tax is correctly structured—such as exemptions for business input purchases (to avoid tax pyramiding). Approximately 34 percent of sales tax expenditures fall into this category. Social policy carve-outs are specific policy decisions enacted for a certain purpose (56 percent fall into this category). Source: State of Illinois Comptroller, Tax Expenditure

Report (Fiscal Year 2013).

Social Policy 56%

Economic Development 10%

Structural 34%

Exemption for Building Materials within Enterprise

Zone, River Edge, Redevelopment Zone, or Intermodal

Terminal Facility Redevelopment Project

Exemption for Designated Tangible Personal Property

within Enterprise Zone

All Other, which Includes High Impact Business Building

Materials Exemption and High Impact Business

Designated Tangible Personal Property Exemption

Gasohol Discount

Biodiesel Discount & Exemption

Feed, Seed, & Farm Chemicals Exemption

Manufacturing & Assembling Machinery & Equipment

Exemption

Rolling Stock Exemption

Farm Machinery & Equipment Exemption

Sales of Vehicles to Automobile Renters Exemption

Manufacturer's Purchase Credit

Exemption for Newsprint & Ink Sold to Newspapers and

Magazines

Graphic Arts & Machinery & Equipment Exemption

Retailer's Discount

Traded-In Property Exemption

Sales of Motor Vehicles to Nonresidents

Rate Reduction for Food, Drugs, & Medical Appliances

Sales to Exempt Organizations

152653_Chp 5_pgs34-39.indd 39 5/18/15 11:42 AM

40

States levy transactional taxes not only on general purchases (in the form of sales taxes) but also on specific types of transactions, such as the purchase of gasoline, alcohol, cigarettes, and wireless phone service. These taxes are known as excise taxes.

Excise tax collections per person have increased over time in Illinois and are much higher than the national average. We highlight three types of excise taxes in this chapter: gasoline excise taxes, “sin” taxes (on cigarettes and alcohol), and wireless phone service taxes.

Gasoline excise taxes in most states aren’t indexed for inflation, meaning that their value has eroded over time. This is also true for Illinois, however, gasoline is subject to the sales tax in Illinois as well as an excise tax. Sin taxes in Illinois, except for those on beer, tend to be comparatively high nationally. Wireless taxes are also well above the national average in Illinois.

Excise Taxes in IllinoisCHAPTER 6

University of Illinois Campus, photo: Kathryn Coulter

152653_Chp 6_pgs40-44.indd 40 5/18/15 11:44 AM

CHAPTER 6 | 41

Illinois’ Total Excise Tax Collections per Person Are HighTotal State and Local Excise Tax Collections per Capita, Illinois and U.S. (1977-2012, in 2012 Dollars)

When all state and local excise taxes are considered, Illinois’ collections per capita are well above the national average. Excise taxes include those levied on the purchase of gasoline, alcohol, cigarettes and other tobacco products, amusements, insurance premiums, public utilities, and others.


$900

$800

$700

$600

$500

$400

$300

$200

$100

$01977 1982 1987 1992 1997 2002 2007 2012

All States

Illinois

152653_Chp 6_pgs40-44.indd 41 5/18/15 11:44 AM


The Value of Illinois’ Gas Tax Has Declined over TimeIllinois’ Gasoline Tax Rate, Nominal and Real (1927-2014)

All states tax motor fuels with excise taxes on gasoline and diesel. Illinois’ gas tax started at 2 cents per gallon in 1927 and has increased periodically to today’s 20.1 cents per gallon (yellow line). The blue line shows each year’s tax rate expressed in today’s cents. For example, the 5 cent per gallon tax in 1957 is the equivalent of 42 cents per gallon today.

Note: Amounts are inflation-adjusted based on the annual average Consumer Price Index for All Urban Consumers (CPI-U) with a 2014 base year. Rates include the state gasoline excise tax, environmental impact fee, and underground storage fee. Fees are scheduled to sunset in January 2025. Rates do not include local excise taxes or state sales tax.Source: Illinois General Assembly, Illinois Compiled Statutes; U.S. Federal Highway Administration, Highway Statistics; Bureau of Labor Statistics, Consumer Price Indexes.

0¢

10¢

20¢

30¢

40¢

50¢

60¢

1927 1932 1937 1942 1947 1952 1957 1962 1967 1972 1977 1982 1987 1992 1997 2002 2007 2012

Tax Rate in 2014 Cents

Tax Rate in Nominal Cents

152653_Chp 6_pgs40-44.indd 42 5/18/15 11:44 AM

CHAPTER 6 | 43

State Cigarette Tax Rate

$1.98 per pack

16th highest in U.S.

State Spirits Tax Rate

$8.55 per gallon


State Wine Tax Rate

$1.39 per gallon


State Beer Tax Rate

$0.23 per gallon


Illinois’ State Excise Taxes on Cigarettes and AlcoholState Excise Tax Rates on Cigarettes, Spirits, Wine, and Beer (as of January 1, 2015)

Taxes on cigarettes and different types of alcohol are often referred to as “sin” taxes. While excise taxes on the sale of these specific types of goods should be used to offset the social costs created by their private use (such as the health issues associated with cigarette and alcohol use), sin taxes should not be used as a means to raise general revenues. The revenues aren’t sustainable over the long run, and these taxes tend to be regressive.

Illinois has relatively high state-level taxes on cigarettes, spirits, and wine. Taxes on beer are more competitive. Local taxes are not included here, which can be substantial.

Note: The cigarette tax rate assumes 20 cigarettes in a pack.Source: Tax Foundation, Facts & Figures 2015: How Does Your State Compare?

152653_Chp 6_pgs40-44.indd 43 5/18/15 11:44 AM


Illinois Taxpayers Face High Wireless Service TaxesCharges on Wireless Service, Illinois and U.S. Average (as of July 2014)

Wireless consumers continue to face excessive tax burdens when compared to the tax burden on other goods and services purchased in the competitive marketplace. The average rates of taxes and fees on wireless telephone services are more than two times higher than the average sales tax rates that apply to most other taxable goods and services.

When federal, state, and local taxes and fees on wireless service are considered, Illinois taxpayers face the fifth highest effective tax rate in the country (21.63 percent). This is considerably higher than the U.S. average of 17.05 percent.

Source: Tax Foundation, Wireless Taxation in the United States 2014.

Federal Rate5.82%

Federal Rate5.82%

Average State + Local Rate:

11.23%

Average State + Local Rate:

15.81%

0%

5%

10%

15%

20%

25%

Illinois

Combined Total Rate:17.05%

Combined Total Rate:21.63%

U.S. Average

152653_Chp 6_pgs40-44.indd 44 5/18/15 11:44 AM

45

Property taxes are a major part of Illinois’ revenue toolkit, representing the largest share of total state and local tax collections. While this is a local-level tax in Illinois, it still has broad implications for state finances.

Illinois’ property tax collections per person, which include taxes paid by both businesses and individuals, are nearly the highest in the nation and have risen over time. When only residential property taxes are considered, Illinois’ effective rates again rank among the highest.

When we discuss property taxes, we’re often describing many layers of taxation at the local level—taxes levied by towns, cities, counties, school districts, and even specific-purpose districts such as those dedicated to fire protection. Because of this, effective property tax rates vary widely by county but also exhibit much intra-county variation, as well.

Property Taxes in IllinoisCHAPTER 7

Edward R. Hills House, Oak Park, Illinois, photo: IvoShandor

152653_Chp 7pgs45-49.indd 45 5/18/15 11:46 AM


Illinois Has High Property Tax Collections per PersonTotal State and Local Property Tax Collections per Capita, Illinois and U.S. (1977-2012, in 2012 Dollars)

Only real property is taxed in Illinois, while personal property (things other than land and buildings, such as cars and furniture) is untaxed. Inflation-adjusted property tax collections per person in Illinois are higher than U.S. collections per person and have been since 1977. Based on this measure of property taxes, Illinois’ are some of the highest in the nation, ranking 10th as of 2012.

Note: Dollar amounts are inflation-adjusted based on the annual average Consumer Price Index for All Urban Consumers (CPI-U) with a 2012 base year. Because local data is unavailable for 2001 and 2003, those points were excluded here, and points surrounding these years are connected with dotted lines.Source: Census Bureau, State and Local Government Finances; Census Bureau, American Community Survey; Bureau of Labor Statistics, Consumer Price Indexes; Illinois Department of Revenue, The Illinois Property Tax System.

$0

$500

$1,000

$1,500

$2,000

$2,500

1977 1982 1987 1992 1997 2002 2007 2012

Illinois

All States

152653_Chp 7pgs45-49.indd 46 5/18/15 11:46 AM

CHAPTER 7 | 47

Illinois’ Residential Effective Property Tax Rates Are Comparatively HighAggregate Real Estate Taxes Paid as a Percent of Aggregate Housing Value of Owner-Occupied Housing Units (5-Year Estimate, 2009-2013)

One way to look at state property taxes is to calculate a state’s residential effective tax rate and see how it stacks up compared to other states’. Illinois’ residential effective rate is third highest in the nation—outranked only by New Jersey’s and New Hampshire’s. In the region, only Wisconsin’s rate comes anywhere close to Illinois’.

However, this measure of property taxes is a state average, so it does not demonstrate the variation in residential effective rates among and within counties in the state. And because this measure looks specifically at residential property, business property is not included.

Note: “Residential Effective Property Tax Rate” is calculated by dividing the total real estate (property) taxes paid in a state by the state’s total housing value (owner-occupied units only). The American Community Survey data used here is based on 5-year estimates (2009 to 2013). This data does not include commercial property.Source: Census Bureau, American Community Survey.

Effective Tax RateNational Rank

KY

INIL

MO

IA1.39%

1.02%

1.92% 0.93%

0.80%

1.63%1.77%

34

28

8

5

3

14

23

WIMI

152653_Chp 7pgs45-49.indd 47 5/18/15 11:46 AM


Residential Effective Property Tax Rates Vary Widely among CountiesAggregate Real Estate Taxes Paid as a Percent of Aggregate Housing Value of Owner-Occupied Housing Units (5-Year Estimate, 2009-2013)

On average, the residential effective property tax rate in Illinois (using a five year average from 2009 to 2013) was 1.92 percent, though county-specific values vary around this mean. The highest residential effective rate occurred in Kendall County at 2.61 percent, while the lowest was in Hardin County at 0.84 percent. Cook County, the home of metropolitan Chicago, had an effective property tax rate of 1.68 percent.

Within a county, individual homeowners’ effective rates may differ from these county averages. For example, a home in Cook County could have drastically different effective property tax rates depending on where it sits—a recent study found that a $250,000 home in Chicago in 2010 had an effective property tax rate of 1.28 percent, while a home with the same market value in Park Forest (also in Cook County) had an effective rate of 5.68 percent.

It’s important to note than an effective property tax rate is not the same as the millage rate (that is, the statutory property tax rate levied by a local government).

Note: “Residential Effective Property Tax Rate” is calculated by dividing the total real estate (property) taxes paid in a county by the county’s total housing value (owner-occupied units only). The American Community Survey data used here is based on 5-year estimates (2009 to 2013). This data does not include commercial property.Source: Census Bureau, American Community Survey; Taxpayers’ Federation of Illinois, Tax Facts, Volume 66, No. 3 (Summer 2013).

2.61%

0.84%

152653_Chp 7pgs45-49.indd 48 5/18/15 11:46 AM

CHAPTER 7 | 49

Illinois Had 5,976 Different Taxing Districts in 2012Percent of Total Number of Taxing Districts by Type (2012)

Property taxes are levied at the local level, and there are many types of local government entities with taxing authority, including counties, cities, towns, school districts, and special purpose districts (such as those for fire protection, hospitals, and airports).

Of the nearly 6,000 local taxing districts that existed in Illinois in 2012, the largest share were special districts (36.6 percent of the total number), followed by townships (24.0 percent), and cities, villages, and incorporated towns (21.3 percent).

Note: “School Districts” includes elementary, unit, high, non-high, and community college districts. “Special Districts” includes the following types of districts: fire protection, park, sanitary, forest preserve, mosquito abatement, public health, airport authority, library, hospital, street lighting, river conservancy, water authority, surface water protection, cemetery, soil and water conservation, auditorium authority, mass transit, watershed/flood control, multi-township assessment, water service, museum, solid waste disposal, rescue squad, and public water.Source: Illinois Department of Revenue, 2012 Property Tax Statistics.

Counties

102 (1.7%)

Townships1,433 (24.0%)

Road Districts77 (1.3%)

Cities, Villages, & Incorporated Towns

1,274 (21.3%)

School Districts902 (15.1%)

Special Districts2,188 (36.6%)

152653_Chp 7pgs45-49.indd 49 5/18/15 11:46 AM

152653_Attribution Pgs50-52.indd 50 5/18/15 11:19 AM

AttributionsCenter for State Tax Policy

Joseph HenchmanVice President, State Projects

Scott DrenkardEconomist & Manager of State Projects

Liz MalmEconomist

Jared WalczakPolicy Analyst

Publications

Melodie BowlerEditor

Dan CarvajalProduction Designer

About the Tax Foundation

The Tax Foundation is the nation’s leading independent tax policy research organization. Since 1937, our principled research, insightful analysis, and engaged experts have informed smarter tax policy at the federal, state, and local levels. Our Center for State Tax Policy is routinely relied upon for presentations, testimony, and media appearances on state tax and fiscal policy, and our website is a comprehensive resource for information on tax and spending policy in each U.S. state.

About the Taxpayers’ Federation of Illinois and the Illinois Fiscal Policy Council

The Illinois Fiscal Policy Council was created in 1981 by the Taxpayers’ Federation of Illinois, the state’s most respected nonpartisan state and local tax and fiscal policy advocacy organization. The Council is a charitable foundation focusing on state and local government finance, particularly issues relating to how Illinois taxes its citizens and businesses. Its educational materials, studies, and other research papers are geared toward and available to the public, elected officials, and the media.

Front Cover – A Greater Task, Springfield, Illinois photo: Mary C. Back Cover – Chicago, Illinois, photo: David Wilson


Taxes are complicated. Each state’s tax code is a multifaceted system with many moving parts, and Illinois is no exception. This chart book aims to help readers understand Illinois’ overall economy and tax system from a broad perspective. But it also provides detailed illustrations of each of Illinois’ major tax types—individual income taxes, business taxes, sales and excise taxes, and property taxes—to help make the complicated task of understanding the state’s tax code a bit easier.

illinois illustrated

Documents

illinois income

illinois taxes

illinois tax code

illinois tax burden

illinois economy

illinois metro income

tax system

tax foundationisbn